1. a Cash is a financial asset because it is the liability of the federal government b. No. The cash does not directly add to the productive capacity of the economy c. Yes. d. Society as a whole is worse off, since taxpayers, as a group will make up for the liability. 2 2. The bank loan is a financial liability for Lanni. Lanni's IOU is the bank's financial asset. The cash Larni receives is a financial asset. The new financial asset created is Larana's promissory note held by the bank. b. The cash paid by Lanni is the transfer of a financial asset to the software developer. In return, Lanni gets a real asset, the completed software. No financial assets are created or destroyed. Cash is simply transferred from one firm to another. c. Lanni sells the software, which is a real asset, to Microsoft. In exchange Lanni receives a financial asset, 1.500 shares of Microsoft stock. If Microsoft issues new shares in order to pay Lanni, this would constitute the creation of new financial asset. d. In selling 1.500 shares of stock for $120.000. Lanni is exchanging one financial asset for another. In paying off the IOU with $50,000 Lanni is exchanging financial assets. The loan is "destroyed" in the transaction, since it is retired when paid